Econ­o­mists pre­dict eco­nomic growth in Latvia to con­tinue

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Latvia’s econ­omy will grow more slowly than it did in Q1. Growth will likely reach at least 4%, predicts Lu­mi­nor Bank econ­o­mist Pē­teris Strautiņš. SEB Bank’s macroe­co­nomic ex­pert Dai­nis Gašpuitis is more re­luc­tant in his out­look. He ex­pects eco­nomic growth rate to be 3.7%, con­sid­er­ing global cy­cles and neg­a­tive trends in cer­tain sec­tors. Swe­bank se­nior econ­o­mist Ag­nese Buce­niece predicts econ­omy to grow 3% this year.

SEB Bank’s eco­nomic ex­pert Dai­nis Gašpuitis says: «In spite of shocks in the fi­nan­cial sec­tor, ner­vous­ness in light of global de­vel­op­ments, in­clud­ing trade wards, Latvia’s GDP has grown 4.3% in Q1 2018. In­dus­trial out­put was +3% in the first three months. Ex­port growth turned out sur­pris­ing: +15% in first two months. Trade has gone out of hand, as well. This is demon­strated by re­tail trade growth of 5%. There are also no doubts about de­vel­op­ments in the con­struc­tion sec­tor, where a clear boom pe­riod has be­gun (35%). Other ser­vice sec­tors are ex­pected to ex­pe­ri­ence healthy growth.» The ex­pert adds that per­for­mance of fu­ture quar­ters will de­pend on global pro­cesses, es­pe­cially in Eu­ro­zone. «In Jan­uary, eco­nomic mood reached the high­est point in the post-cri­sis pe­riod. Al­though it de­clined later on, it re­mains suf­fi­ciently high. Sim­i­lar move­ment is ob­served to­wards OECD eco­nomic growth in­dexes. Al­though some­what lower, it nev­er­the­less points to sta­ble growth this year. Other con­di­tions prom­ise to the pos­i­tive in spite of re­main­der of geopo­lit­i­cal and trade war risks.»

Lu­mi­nor econ­o­mist Pē­teris Strautiņš points to­wards the rapid growth recorded at the be­gin­ning of the year. «GDP growth in Q1, ac­cord­ing to the flash es­ti­mate, was 4.3%. Sea­son­ally ad­justed data, on the other hand, sug­gests GDP growth was 5.2%. Com­pared to the pre­vi­ous quar­ter, Latvia’s econ­omy has growth 1.7%. Sea­son­ally ad­justed growth for the quar­ter and an­nual look was the sec­ond most rapid in at least six last years. It is pos­si­ble that Latvia’s econ­omy this year may grow slightly slower than it did in Q1. It will likely reach 4%.»

SEB Bank’s ex­pert is not as con­fi­dent with such a pos­i­tive pre­dic­tion. «Con­sid­er­ing the global cy­cle and clearly neg­a­tive trends in cer­tain sec­tor, this year’s eco­nomic growth out­look is 3.7%,» says Gašpuitis.

Swed­bank’s se­nior econ­o­mist Ag­nese Buce­niece is also cau­tious in her pre­dic­tions: «It is ex­pected that the do­mes­tic econ­omy will re­main strong in the com­ing quar­ters to han­dle the col­lapse of banks’ non-res­i­dent seg­ment. Swed­bank’s pre­dicted eco­nomic growth rate for 2018 is 3%. Con­sid­er­ing the pow­er­ful start of the year, 3% is a very cau­tious out­look. We main­tain it be­cause we ex­pect non-res­i­dent de­posits to con­tinue de­clin­ing. We also ex­pect im­port vol­umes to grow more quickly than they did at the be­gin­ning of the year, con­sid­er­ing in­creased con­struc­tion and in­vest­ment ac­tiv­ity. Eco­nomic growth rate will likely be­come slower in the main ex­port mar­kets, be­cause of that Latvia’s GDP growth rate should be slowed down in the fu­ture quar­ters.»

Ex­perts from Swed­bank and Lu­mi­nor both un­der­lined the rapid con­struc­tion growth. Swed­bank econ­o­mist Buce­niece notes: «Rapid growth in con­struc­tion has ex­ceeded last year’s ac­com­plish­ments. It demon­strates ca­pa­ble in­vest­ment growth. Re­al­iza­tion of EU fund projects, high load and con­struc­tion of dif­fer­ent procurement cen­tres, stores and of­fice build­ings con­trib­utes to this. It looks as if very rapid con­struc­tion growth has more than com­pen­sated the col­lapse of the non-res­i­dent seg­ment.»

Lu­mi­nor econ­o­mist Pē­teris Strautiņš adds: «The opin­ion that the con­struc­tion sec­tor de­pends on EU funds is pop­u­lar. Im­pact from it is con­sid­er­able, but it should not be ex­ag­ger­ated. One of the in­dus­try’s lead­ing com­pa­nies – Merks – re­ported its last year’s re­sults on Wed­nes­day, 2 May, adding that its ser­vice port­fo­lio was ex­panded by projects worth EUR 178 mil­lion in the last six­teen months. This amount ex­ceeds the com­pany’s al­ready rapidly grow­ing turnover (by 68%) from last year. 99% of this amount is formed from or­ders of the pri­vate sec­tor.»

Both SEB Bank and Lu­mi­nor ex­perts men­tioned turnover de­cline in port and rail­way sec­tors, adding that what used to be called as tra­di­tional tran­sit or car­ry­ing raw ma­te­ri­als from east to west no longer plays a ma­jor role in econ­omy as it used to. «Tran­sit is no longer a dom­i­nant trans­port ser­vice in the ex­port sec­tor. Avi­a­tion and land trans­port ex­port vol­ume was EUR 1.311 bil­lion, whereas port and rail­way ex­port vol­ume was EUR 711 mil­lion. This year’s pro­por­tion will have more than dou­bled this year,» says Strautiņš. Gašpuitis points to a de­cline in port (-18.2%) and rail­way (-15.4%) freight turnover. «It is ex­pected this turnover de­cline will con­tinue this year,» he adds.

Both econ­o­mists agree that it is thanks to the sit­u­a­tion on the labour mar­ket and wage rise there will be fer­tile soil for fu­ture con­sump­tion growth. Strautiņš predicts that re­tail trade and other con­sump­tion in­dus­tries will grow at an equal rate. At the same time, he notes that «state bud­get rev­enue in Q1 grew more rapidly than ex­pen­di­tures, be­cause of that, cur­rent fis­cal pol­icy’s in­flu­ence has had a slow­ing ef­fect on the econ­omy.»


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